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ANNEXURE C additional information on insurance businesses continued... 3. Insurance assets and liabilities (continued) The compulsory margins are summarised as follows: Assumption Compulsory margin Investment earnings 0,25% increase or decrease in investment earnings rate depending on which gives the higher liability Expense inflation 10% loading i.e. 1,1 times the expense inflation assumption used Mortality Assumption was increased by 7,5% i.e. 1,075 times the relevant mortality rate Morbidity Assumption was increased by 10% i.e. 1,1 times the relevant mortality rate. For dread disease the margin is 15% Retrenchment Assumption was increased by 20% i.e. 1,2 times the relevant retrenchment rate Lapses 25% increase or decrease in lapse rates depending on which gives the higher liability i.e. multiply by 1,25 or 0,75 Surrenders 10% increase or decrease in surrender rates depending on which gives the higher liability i.e. multiply by 1,1 or 0,9 Expenses 10% loading i.e. 1,1 times the expense assumption used In addition to the above compulsory margins the following additional discretionary margins were incorporated: Retrenchment An additional 30% margin was added Expenses Individual Life has an additional 10% discretionary margin Extended lives mortality An additional 7,5% margin was added All other decrements For credit life an additional 10% margin was added Negative reserves were recognised in full. The specific process of deriving the best estimate assumptions relating to future mortality, morbidity, medical, withdrawals, investment returns, maintenance expenses, expense inflation and tax are described below: a) Mortality Adjusted standard assured lives and annuity tables were used to reflect the group’s recent claims experience. The adjustments are based on annual mortality investigations conducted into the different classes of business and also allow for the expected increase in AIDS related claims. The allowance for AIDS is based on the relevant actuarial guidance notes as provided by the Actuarial Society of South Africa (ASSA). b) Morbidity Disability and dread disease rates are based on standard morbidity tables and where appropriate, adjusted to reflect the group’s recent claims experience. Adjustments made are based on investigations conducted once a year. c) Medical and retrenchment The incidence of medical and retrenchment claims is derived from the risk premium rates determined from annual investigations. The incidence rates are reviewed on an annual basis, based on claims experience. The adjusted rates are intended to reflect future expected experience. d) Withdrawal The withdrawal assumptions are based on the most recent withdrawal investigations taking into account past as well as expected future trends. The withdrawal investigation is performed each year and incorporates ten months’ experience. The withdrawal rates are analysed by class and policy duration. These withdrawal rates vary by duration, distribution channel, product type and company. Typically the rates are higher at early durations. e) Investment returns Separate investment returns were derived for the annuity and non-annuity business. Furthermore, for the non-annuity business, separate interest rates were determined for Individual Life and Credit Life classes of business. The returns were based on the current bond yields of appropriate term and long-term differentials between bonds, cash and equities. The assumptions were based on the long-term rates and notional matched portfolio of assets. Allowance was made for mismatches. The long-term investment returns (before compulsory margins) are as follows: Credit life single premium business: 6,97% (2008: 10,9%) Credit life regular premium business: 8,37% (2008: 10,9%) Individual life: 8,65% (2008: 10,9%) Annuity business: 9,16% (2008: 10,5%) 136 <strong>Imperial</strong> holdings limited Annual Report 2009
3. Insurance assets and liabilities (continued) f) Renewal expenses and inflation Financial Statements A detailed expense investigation was undertaken and the expenses were split by line of business and between new business and maintenance expenses. The maintenance expenses were adjusted for expected inflation in the future and spread over the anticipated volumes of business over the next year to derive a per policy expense for each class. The expenses allocated to new business are expected to be covered by future new business written. g) Tax The interest assumptions are net of any tax payable by the group. Note that currently the group is in an excess expense tax position in its policyholder funds and no tax is payable on investment income. Interest rates are net of any capital gains tax. Change in assumptions The following changes were made to the Published Reporting valuation basis. All assumptions include compulsory margins. For South Africa, the economic assumptions were reviewed to reflect the current economic environment, as follows: • The discount rate for credit life business was reduced from 10,65% to 8,62%. The discount rate for individual life and mortgage business was reduced from 10,65% to 8,40%. The discount rate for the disability annuitant business was reduced from 10,25% to 8,91%. • The loan interest rate for credit life and mortgage business was reduced from 17,75% to 13,75% per annum. • Expense inflation for all business was reduced from 9,46% to 6,99%. • The assumed rate of pension increases for the disability annuity business was reduced from 8,78% to 6,51% per annum. As a result of these economic changes, the actuarial liabilities reduced by R15,8 million. The non-economic assumptions were also reviewed as follows: • The death, permanent disability, temporary disability, retrenchment and AIDS assumptions were adjusted to reflect the recent claims experience. The combined effect resulted in a R14,8 million release in actuarial liabilities. • Per policy expenses were amended to reflect the current and expected future experience. This resulted in a release in actuarial liabilities of R15,8 million. • The withdrawal assumptions were adjusted to reflect the recent lapse experience. This resulted in a release in actuarial liabilities of R6,6 million. As a result of these non-economic changes, the actuarial liabilities reduced by R37,2 million. The overall impact of all the above changes was a reduction in the actuarial liabilities of R53 million. Regarding Botswana, the value of liabilities as at 30 June 2009 reduced by P2,7 million as a result of changes to valuation assumptions. The main assumption changes causing this release were as follows: • The renewal expense assumptions were amended in the light of the most recent expense investigation. This resulted in a release of P2,1 million. • The economic assumptions were amended to reflect the current economic environment. This resulted in a strain of P0,5 million. • The withdrawal assumptions were amended to reflect the recent withdrawal experience. This resulted in a weakening of P0,2 million. • The permanent disability, dread disease, temporary disability and mortality (including AIDS) assumptions were adjusted to reflect the recent claims experience. This resulted in a release of P0,9 million. <strong>Imperial</strong> holdings limited Annual Report 2009 137
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company Overview Chairman’s repor
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our past Our strengths in the marke
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PROFILE Imperial is a diversified m
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for more information please visit w
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Directors and executive committee 2
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Chairman’S report paying dividend
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Chief exeCutive offiCer’S report
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Chief exeCutive offiCer’S report
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16 16 imperial Imperial holdings li
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Divisional review > logistics conti
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Divisional review > Car rental and
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Divisional review > distributorship
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Divisional review > vehicle dealers
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Divisional review > insurance By me
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financial director’s report Stron
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financial director’s report conti
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10-year review profit before tax an
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shareholders’ information Distrib
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declaration of dividends Preference
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group balance sheet at 30 June 2009
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Group statement of changes in equit
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segment information - balance sheet
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segment information - income statem
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Notes to the group annual financial
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